There's over 400 PS1 and 300 PS2 games on PSN - that'd be a good place to start.
Yes, but I think they still would have to get their publishers/current IP owners to sign and have all their licensing stuff up to date.
TBH - I don't really know, how custom the rack hw is, but they run off of different storage etc so yea, there's hw-abstractions/virtualization going on that retail hw doesn't deal with.
As I remember the rack hardware had basically the one of 8 console motherboards embeedded to work separatedly with modified OS to stream video and controls and launch the games and hiding the home buttons to act as when in PS Now instead of what you do in a real console.
It's a good question how much they even want to scale right away. Streaming is largely still a loss-leading service at this point, for all players involved.
I think that in a new tier that would include only the downloadable games of PS Now + maybe the PS Plus Collection too (so basically their version of the base tier of GamePass) can be scaled day one to a worldwide scale. A lot of people would subscribe and they wouldn't have scalability issues because servers to download stuff can be anywhere in the world.
Streaming servers is different, because for game streaming latency is key, which means that the server must be relatively very close to the player to have an optimal experience. And they spend a shit ton of money on internet bandwith, and to have a lot of servers spread around the world would be too expensive, something not worth with their current business model. Plus in many countries or areas people at home has shitty internet connections and internet data caps, and 5G won't help during the first decade or so because as of now 4G coverage already sucks after many years: a big portion of the world doesn't have 4G coverage. So in terms of streaming -at least in the next few years- regarding countries support I think they may scale up a bit, but not much.
Eg. MS currently offers about 25% of the 360 library in their BC program, and that's considered a substantial enough offering that keeps people happy.
Regarding the amount of supported games in the case of MS and Sony of OG Xbox and PS2 titles, I think it has more to do with licensing issues with the IP owners of the games, or with their publishers considering that it isn't worth to spend investment in these very old games that almost nobody is going to buy today.
If the emulator is good enough to support let's say >90% of the games (ouside the ones with accesories) at -at least- original perfomance with no bugs and the only thing that the publisher has to do update their licensing stuff, to sign and get the money, many more publishers will be in. Which I assume is the MS case.
Meanwhile with PS3 if you have instead an emulator that supports around half of the games with full performance and no bugs, a third with bugs or performance issues that would work well if making some tweaks to the original game code or the emulator, and a third of games that won't work, the publishers may not be interested, possibly because they don't have the original source code anymore or the engine and tools with the versions they did use back then because newer ones may not be compatible. Same goes with telling them that must implement trophies, some publishers won't want to make that effort even if they can go in the same way fans do it in fan-made trophies for emulators that run on PC.